Scam o Rama: Quit While You're Ahead: "Another missive from Thomas Mallory, last heard from in The Flying Savimbi Brothers. Note: Just so you know: Mr. Mallory's attorney, Melanie Rourke, is possibly meaner than Lonslo Tossov. We actually edited some of her dialogue. We just felt the need. Mr. Mallory was very nice about it. Call us politically correct if you like. Just don't call us late for dinner...
Yes, Expansionary Fiscal Policy in The North Atlantic Would Solve Many of Our Problems. Why Do You Ask?
Over at Equitable Growth: The highly-estimable Jared Bernstein has a very nice piece today. It attempts to sum up a great deal about the state of the economy in a very short space with five super-short equations;
- One is about our current likely-to-be-chronic inequality problems.
- Two are about our demand-management and maintaining-employment problems.
- Two more strongly suggest that the solutions to our problems are extraordinarily simple. They say that in our current dithering and paralysis we are frozen out of fear of dangers that simply do not exist. Thus we are leaving very large and very gourmet free lunches on the table.
So, first, let us listen to Jared:
From the "Meeting Report" section of the Fall 2015 Brookings Papers on Economic Activity:
”Fredric Mishkin elaborated on the issues that discussant Adam Posen had raised...
...regarding how demoralizing the outcomes from Japanese monetary policy have been. He had felt more strongly than Posen that expectations were very important and that managing expectations is a key element in good monetary policy. He and his colleagues expected much stronger effects in Japan from the expansion of its monetary policy. Japan’s outcome might demonstrate that raising inflation expectations is much more difficult than lowering them, and moreover this might be true globally.
At the zero lower bound on safe nominal short-term interest rates, an expansionary fiscal policy impetus of d percent of current GDP will:
- raise current output by (μ)d,
- raise future output by (φμ)d, and
- raise the debt to GDP ratio by a proportional amount ΔD = (1 - μτ - μφ)d,
where μ is the Keynesian multiplier, τ is the tax rate, and φ is the hysteresis coefficient.
Skidelsky on: The Two Big Economic Policy Failures That John Maynard Keynes Would Be Disappointed by Today
I missed this six months ago:
The Two Big Economic Policy Failures That John Maynard Keynes Would Be Disappointed by Today: "The famous economist isn't around for us to ask him...:
...but here is probably the next best thing. Robert Skidelsky... said... Keynes would have found two things upsetting. First, he would be frustrated with the lack of precautions taken to prevent a huge financial crash like the one we saw in 2008. Secondly, Lord Skidelsky believes Keynes... would have wanted a more 'buoyant response,' he said. Specifically, he doesn't think Keynes would have liked the Federal Reserve's quantitative easing....
I really, truly am obsessing about this to excess, am I not?
But it's overwhelmingly weird: conclusions that seem to me obvious and inescapable, nailed-down and air-tight, ironclad and titanium do not seem to have any force with the deciding members of the FOMC:
Over at Huffington World Post: Future Economists Will Probably Call This Decade the 'Longest Depression'
Over at Huffington World Post: Future Economists Will Probably Call This Decade the 'Longest Depression': Posted: 01/08/2016 9:28 am EST Updated: 49 minutes ago: Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a 'Great Malaise.' This week, he followed up on that grim prediction, saying, 'We didn't do what was needed, and we have ended up precisely where I feared we would.' READ MOAR
Hoisted from 2012/Live from Zachary's: Is the U.S. at Immediate Risk of Rapidly Becoming "Argentina" as a Result of Expansionary Counter-Cyclical Policies?: The Bet with Noah Smith: Noah Bravely Takes the Cochrane-Argentina Side…: The bet:
If, at any time between 7/28/2012 and 7/28/2015, core consumer prices, as recorded in the FRED database series CPILFESL, are up more than 5% in the preceding 12 months, and if over the same 1-year period monthly U3 unemployment (as recorded in FRED database series UNRATE) has not averaged below 6%, then Brad DeLong agrees to buy Noah Smith one dinner at Zachary's Pizza and to pay Noah 99 times the cost--including tax but excluding tip--of Noah's meal at Zachary's in Federal Reserve notes, or in alternative means of payment accepted by Zachary's should Zachary's Pizza no longer be accepting Federal Reserve notes at the date of the dinner. This cost will be assessed as the total cost of the dinner to all, divided by the number of people present, regardless of how much pizza is consumed by or how much alcohol is drunk by specific individuals.
When and Why Might a "Confidence" Shock Be Contractionary?: Karl Smith's Approach Can Bring Insights...
When and why does the Confidence Fairy appear? The very sharp-witted Karl Smith has long had a genuinely-different way of looking at the national income identity. I think his approach can shed much light on this question. And it can also shed light on the closely related question of when and whether governments seeking full employment should greatly concern themselves with "confidence".
Hoisted from the Archives: How Much Did Larry Summers Fear the Invisible Bond Market Vigilantes in December 2008?: The Obama Economic Policy Memo
How Much Did Larry Summers Fear the Invisible Bond Market Vigilantes in December 2008?: The Obama Economic Policy Memo: My conclusion is that he did not fear them much, if at all.
A Semi-Platonic Dialogue About Secular Stagnation, Asymmetric Risks, Federal Reserve Policy, and the Role of Model-Building in Guiding Economic Policy
Sokrates: You remember how I used to say that only active dialogue--questions-and-answers, objections-and-replies--could convey true knowledge? That a flat wax tablet covered by written words could only convey an inadequate and pale simulacrum of education?
Aristoteles: Yes. And you remember how I showed you that you were wrong? That conversation is ephemeral, and very quickly becomes too confused to be a proper educational tool? That only something like an organized and coherent lecture can teach? And only something like the textbooks compiled by my lecture notes can make that teaching durable?
Aristokles: But, my Aristoteles, you never mastered my "dialogue" form. My "dialogue" form has all the advantages of permanence and organization of your textbooks, and all the advantages of real dialectic of Sokrates's conversation.
MOAR Musings on the Current Episteme of the Federal Reserve...: The Honest Broker for January 4, 2016
Let me back up: Here in the United States, the current framework for macroeconomic policy holds that the economy is nearly normalized, that further extraordinary expansionary and fiscal policy moves carry "risks", and that as a result the right policy is stay-the-course. I was arguing that the Economist Left Opposition demand--for substantially more expansionary monetary and fiscal policies right now until we see the whites of the eyes of rising inflatio--was soundly-based in orthodox lowbrow Hicks-Patinkin-Tobin macro theory. That is the macro theory that economists like Ben Bernanke, Janet Yellen, and Stan Fischer taught their entire academic careers.
Paul Krugman points out—politely—that I am wrong.
Larry Summers attributes the Federal Reserve's decision to tighten policy, in what appears to him and to me to be a weakly-growing and high-slack economy, to four mistakes, which are themselves driven by a fifth, overarching mistake. The four mistakes are:
Over at Project Syndicate: Of all the strange and novel economic doctrines propounded since 2007, Stanford's John Taylor has a good claim to [propounding the strangest]: In his view, the low interest-rate, quantitative-easing, and forward-guidance policies of North Atlantic and Japanese central banks are like:
imposing an interest-rate ceiling on the longer-term market... much like the effect of a price ceiling in a [housing] rental market.... [This] decline in credit availability, reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence..."
When you think about it, this analogy makes no sense at all.
Over at Equitable Growth: I am, once again, struck by just how much smarter the economics profession as a whole would have been over the past sixteen years if only people had taken as their lodestone this paper: (1999): Thinking about the liquidity trap
Wherever I look at the post-2007 discussion in macroeconomics, I see enormous literatures and subliteratures, all of them containing a great deal of verbose and confused argument, all of them eventually leading to conclusions that were... laid out with diamond-like clarity in single paragraphs in Krugman (1999): READ MOAR
What Is the Eccles Building Thinking Today? I: The Failure to Think Through the Consequences of "Secular Stagnation"
Over at Equitable Growth: Olivier Blanchard, at least, has said that the secular decline in global real interest rates and increased macro instability means that the 2%/year inflation target was greatly ill-advised and needs to be raised to 4%/year. But, among the great and good who staff the finance ministries, central banks, and international organizations these days, he is nearly alone. And the other pieces of the policy puzzle that might get us out of our zero-lower-bound-secular-stagnation pickle--aggressive redistribution via taxes and transfers, higher debt levels for reserve currency-issuing sovereigns with exorbitant privilege to boost the supply of safe assets, reducing risk premia by governments' assumption of the role of entrepreneurial risk-bearer of last resort, international organizations that emerging markets regard as friends rather than enemies--are nowheresville. READ MOAR